An Unanticipated Shift to a More Expansionary Monetary Policy by the Fed

question 58

Multiple Choice

An unanticipated shift to a more expansionary monetary policy by the Fed will

• A) increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.
• B) reduce real interest rates, leading to an appreciation of the dollar and an expansion in net exports and aggregate demand.
• C) increase real interest rates, leading to higher asset prices that will stimulate aggregate demand.
• D) reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.

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Definitions:

Classical Conditioning

A learning process that occurs through associations between an environmental stimulus and a naturally occurring stimulus, famously demonstrated by Pavlov.

Operant Conditioning

A technique in education that involves altering a behavior's intensity through reinforcement or penal actions.

Cognitive Dissonance

The discomfort experienced when holding two or more conflicting beliefs, values, or attitudes, especially when actions contradict beliefs.

Exposure Effect

The phenomenon where repeated exposure to a stimulus increases an individual's preference for that stimulus.